DocuSign, Inc. (DOCU): A Bear Case Theory

We came across a bearish thesis on DocuSign, Inc. (DOCU) on Deep Value Returns’ Substack. In this article, we will summarize the bears’ thesis on DOCU. DocuSign, Inc. (DOCU)’s share was trading at $75.28 as of 6^th June.  DOCU’s trailing and forward P/E were 14.31 and 20.07 respectively according to Yahoo Finance.

DocuSign (DOCU) saw its stock fall nearly 17% to around $77 following a disappointing fiscal 2026 outlook, which revised expected billings growth from 9% to 7% year-over-year. This was a significant setback for what had been a slow turnaround story, with billings being a key leading indicator of future revenue.

The updated guidance casts doubt on the company’s ability to reaccelerate growth, suggesting revenue may trend from 8% to as low as 5% y/y through the remainder of the year. Compounding concerns, DocuSign’s free cash flow margins—a core pillar of the bull thesis—fell to 29.8% in Q1 from 32.7% a year earlier, prompting a downward revision of full-year margin expectations from 33% to 31%.

While DocuSign still boasts a strong balance sheet with no debt and roughly $950 million in cash (about 6% of its market cap), the business is now expected to generate just $985 million in free cash flow, implying a 16x forward multiple for a company facing marginal growth. This valuation is no longer attractive in light of eroding operating leverage. The author, previously optimistic due to the company’s margin potential and balance sheet strength, now views the risk/reward as balanced at best. With both billings and free cash flow coming in below even conservative expectations, the original thesis has broken down.

As such, the author’s position has been closed, with capital redirected toward opportunities offering stronger growth visibility and cleaner execution setups. This candid reassessment reflects a disciplined exit rather than emotional capitulation.

Previously, we summarized a standout bullish thesis on Super Micro Computer by the same author, emphasizing its strategic alignment with AI infrastructure demand, scalable custom server offerings, and attractive free cash flow valuation, arguing that current headwinds are transitory and already priced in.

DocuSign, Inc. (DOCU) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held DOCU at the end of the first quarter which was 51 in the previous quarter. While we acknowledge the risk and potential of DOCU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.